We investigate crop rotation with legumes from economic and environmental perspectives by asking how effective they are at providing profits and reducing nutrient runoff and greenhouse gas emissions compared with monoculture cultivation. We study this effectiveness in three alternative policy regimes: the free market optimum, the Finnish agri-environmental scheme, and socially optimal cultivation, and also design policy instruments to achieve the socially optimal outcomes in land use and fertilization. We first develop an analytical model to describe crop rotation and the role of legumes, and examine its implications for water and climate policies. Drawing on Finnish agricultural data, we then use numerical simulations and show that shifting from monoculture cultivation to crop rotation with legumes provides economically and environmentally better outcomes. Crop rotation with legumes also reduces the variability in profits caused by stochastic weather. The optimal instruments implementing the social optimum depend on nutrient and climate damage (nitrogen tax), as well as carbon sequestration and nutrient reduction benefits (buffer strip subsidy).

We provide a theoretical framework and detailed bioeconomic simulations to examine privately and socially optimal dairy farm management in the presence of nutrient runoff and greenhouse gas emissions. Dairy farms produce milk by choosing herd size, diet, fertilization and land allocation between crops, as well as (discrete) manure storage and spreading technologies and the number of milking seasons. We show analytically that a critical radius emerges for the choice of land use between silage and cereal cultivation and fertilizer types (mineral and manure). Both privately and socially optimal manure application rates decrease with application distance. We characterize the optimal climate and water policy instruments for dairy farming. A detailed bioeconomic simulation model links farm management decisions with their impacts on climate and water quality. We numerically solve the social and private optima and the features of optimal climate and water policy instruments. We show that using only climate instruments provides considerable water co‐benefits, and in the same vein, the use of water quality instruments provides considerable climate co‐benefits. Climate policies lead to a reduction in herd size, as measures relating to manure management and spreading are relatively inefficient at reducing climate emissions. There is much more leeway for adapting to water policies than to climate policies, because dairy farms have multiple measures to reduce their nutrient loads.

We examine the abatement costs for water and climate pollutants and their respective policies while accounting for cobenefits. We construct private and social marginal cost curves for reducing greenhouse gas emissions and nutrient runoff in Finnish agriculture. We find that the social marginal costs of reducing emissions that reflect the cobenefits are lower than the private costs. Accounting for greenhouse gas cobenefits from nutrient load reduction or water cobenefits from climate emissions reduction creates a gap between privately and socially optimal reduction levels. This gap varies depending on the valuation of cobenefits. The cost-efficient reduction of the focus pollutant is increased when cobenefits from the other pollutant are accounted for. For policies, this implies a higher cap or tax on the focus pollutant. We decompose the optimal tax rate to a basic tax on the focus pollutant and on an additional tax component depending on the level of cobenefits.Electronic supplementary materialThe online version of this article (10.1007/s13280-019-01257-z) contains supplementary material, which is available to authorized users.

This paper examines the potential impact of climate change on grassland butterfly species in Finland. It combines multiple climate change scenarios and different impact models for bioclimatic suitability to capture multifaceted aspects of uncertainty. It also evaluates alternative options to enhance the adaptation of grassland biodiversity. Due to the long-term decline of semi-natural grasslands, their current extent in Finland is much lower than the minimum level estimated to ensure the survival of butterfly species. Projected locations of the climatically most suitable areas for butterfly species varied considerably between different modelling techniques and climate change scenarios. This uncertainty needs to be taken into account in planning adaptation responses. Analysis of potential adaptation options considered the promotion of existing measures based on the agri-environmental scheme (AES), as well as new measures, including species translocation and dispersal corridors. Current AES options were compared using a cost-effectiveness analysis (CEA). The CEA results indicated that buffer zones are the most costeffective AES measure, although environmental fallows and buffer zones had broadly similar cost-effectiveness. The cost of translocation was relatively modest compared to that of dispersal corridors, due to the high number of habitat stepping stones required along potential dispersal corridors. A questionnaire survey of Finnish farmers revealed that a third of the respondents supported increases 123Reg Environ Change (2016) 16:71-84 DOI 10.1007 in nature conservation. Thus, large increases of the uptake of biodiversity-related AES measures among farmers may prove to be difficult. Given the small areas currently assigned for such measures, the prospects for the adaptation of grassland butterflies to climate change in Finland appear unfavourable.

We review the literature on climate change mitigation in agriculture with a focus on the use of climate policy instruments to incentivize the adoption of greenhouse gas mitigation measures. We develop an economic model characterizing the production decisions in animal and crop production farms and link our discussion on policy instruments to them. We review mitigation measures and their cost-effectiveness in reducing emissions. Given the multiple sources of agricultural emissions, the literature finds carbon taxes and emissions trading to perform best. The challenges involved in measuring and verifying changes in emissions make the implementation of policies targeting all sources of emissions difficult. Second-best policies addressing a subset of emissions, such as those from ruminants or mineral fertilizers, are more feasible but less efficient. Carbon sequestration in arable soils, while technically promising, faces the problems of heterogeneity in sequestration capacity, measurement, verification and permanence of sequestration. The variation of estimates on emissions reduction, abatement costs and differences in model simulations is large. A better basis for policy designs is needed.